The Risks To Urban Outfitters In 2017

Urban Outfitters, Inc. URBN reported Q4 EPS at $0.55, missing the Street estimate of $0.56, due to lower gross margins.

Sales and margins at Anthropologie could “deteriorate meaningfully” in 2017, while there is risk at Urban Outfitters, MKM Partners’ Roxanne Meyer said in a report. She maintained a Sell rating on the company, with a price target of $20.

Looking Ahead At 2017

“Gross margin was negatively impacted [in Q4] by increased customer delivery and logistics expense rates, which we believe will likely weigh on gross margin in 2017, as well as by lower IMU [initial mark-up] and increased markdowns at both Anthropologie and Urban Outfitters (also expected to continue),” Meyer wrote.

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Although the company announced changes to Anthropologie leadership, the impact of these will likely not be felt “until 3Q earliest and more likely in 4Q or even into 2018,” the analyst pointed out. She added that management’s projection of Anthropologie’s comp decline in Q1 being similar to that in Q4 seems optimistic.

“What is perhaps still not appreciated is the extent of sales and margin declines we could see as Anthropologie disappoints, particularly in 1H,” Meyer commented. She stated the Q4 softness at Urban Outfitters was unexpected and this could weigh on comps and margins in the first half of 2017.